COST – Costco Wholesale Corp. – July 45 strike puts are attracting traders today where 17,700 contracts have so far been traded with premiums reaching 1.30 by this afternoon. Shares in the company are lower but not by much at $46.27, but that’s been enough to boost put premiums by 30% today. Notable is the fact that this bearish strike is home to around 20,000 established bear plays. Note quite sure why the bearish tack for the retailer today, but options activity is certainly active.
HRB – H&R Block, Inc. – The financial services provider jumped onto our ‘hot by options volume’ market scanner this afternoon after one option player took a bullish stance on the firm. Shares of HRB have rallied approximately 1.25% to $15.49. Hoping for continued upward movement in the stock through expiration in October, the trader was seen selling 5,000 puts at the October 15 strike price for a premium of 1.20 apiece. It appears that he then purchased 5,000 calls at the higher October 16 strike price for 1.15 per contract. The trader receives a credit of one nickel per option contract and is looking for shares to rally through the breakeven point at $16.05 by expiration in four months time. Risk is of a share price decline through $13.80.
UNH – UnitedHealth Group, Inc. – Shares have rallied more than 4% to $25.03 today, prompting one investor to look for continued bullish movement in the stock through expiration in July. The trader initiated a ratio call spread by purchasing 7,500 now in-the-money July 24 strike calls for a premium of 2.15 apiece spread against the sale of 15,000 calls at the higher July 27 strike for an average premium of 70 cents each. The net cost of the optimistic play amounts to 75 cents and yields maximum potential profits to the investor of 2.25 per contract if shares can surge to $27.00 by expiration. Given the current price of the underlying, this individual has already surpassed the breakeven point on the trade at $24.75 and has realized gains of approximately 28 cents.
EEM – iShares MSCI Emerging Markets Index – We observed one investor who expects little price movement in shares of the emerging markets ETF through expiration in July. Shares of the fund are currently higher by less than 0.5% to $31.75. This individual established a sold straddle at the July 31 strike price by selling 20,000 calls for 1.76 apiece and 20,000 puts for an average premium of 1.46 per contract. The gross premium on the transaction amounts to 3.22 and is safe under this investor’s mattress if shares settle at $31.00 by expiration. The premium provides a buffer against losses as long as the price of the underlying does not rise higher than the breakeven point to the upside at $34.22 or all below the breakeven point to the downside at $27.78. We note that the ETF was trading at $34.66 just a few weeks ago on June 1, 2009, and was last trading beneath $27.00 at the end of April.
